Monday, 12 October 2015

How TPP benefits Singapore

TPP allows bidding for foreign govt contracts, boosts market access, eases regulatory snags
By Chia Yan Min, Economics Correspondent, The Sunday Times, 11 Oct 2015The Trans-Pacific Partnership (TPP) will go beyond boosting investment and trade to offer a range of other benefits to Singapore firms, said the Ministry of Trade and Industry (MTI), which has released more details about the potential impact of the trade deal.These benefits include being able to bid for government contracts in other TPP countries, and the ability to take a larger stake in foreign firms operating in key sectors abroad.

The TPP is a far-reaching agreement involving 12 countries which make up 40 per cent of the world economy.The deal was finally struck in Atlanta, the United States, last Monday after more than five years of intense negotiations. It must now be signed formally by the leaders of the 12 nations - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam - and ratified by their legislatures.

MTI said the benefits to Singapore fall into three main categories.First, the TPP will offer comprehensive market access for Singapore exporters of goods and services. Notably, Singapore investors can expect to benefit from the removal of foreign equity restrictions in private healthcare, telecommunications, courier, energy and environmental services in Brunei, Malaysia and Vietnam.

The TPP will also enable Singapore companies in the IT, construction and consultancy sectors to bid for government procurement projects in markets such as Malaysia, Mexico and Vietnam, which were previously closed to foreign bidders.Next, the TPP will reduce "behind-the-border", or non-tariff, regulatory barriers to ease the flow of trade and investment. This means countries will be required to make Customs laws, regulations and procedures more transparent, and also tackle hidden costs impeding business operations, like corruption.

Lastly, the TPP addresses emerging concerns faced by businesses and consumers, such as intellectual property and the growth of the digital economy.

CIMB Private Bank economist Song Seng Wun said the direct economic impact of the TPP on Singapore might be limited given that it already has existing free-trade agreements with all the countries involved except Canada and Mexico.

But companies here will enjoy indirect benefits when the economies of other TPP countries get a lift from the deal, he noted. The TPP is also more comprehensive and in-depth than Singapore's existing bilateral agreements.

Still, Mr Song pointed out that the trade pact is years away from entering into force, and while the provisions "look good on paper", effective implementation could be tricky.

For instance, while the TPP will lift curbs on foreign ownership of companies in private healthcare, energy and telecommunications in Brunei, Malaysia and Vietnam, these industries tend to be dominated by domestic incumbents.

"Local incumbents usually have a stranglehold and it's tough for new players to come in, which is probably why countries are more willing to open up the playing field in these sectors," he noted.

"Still, at least the opportunities will be there for Singapore companies."

The TPP will enter into force once at least six original signatories, accounting for at least 85 per cent of economic activity across the TPP countries, have ratified the agreement.

This is by no means certain, with national elections coming up in Canada and the US - and the TPP being seen as a lightning rod issue.

In Singapore, the TPP will be ratified once it is approved by the Cabinet, and any legislative changes that may be required are passed in Parliament, MTI said.The ministry acknowledged that Singapore will have no control over how long various TPP countries take to enact the necessary laws and ratify the agreement."Nonetheless, Singapore hopes to see entry into force of the TPP without unnecessary delay within the next three years or sooner if possible," it said.

TPP: What's in it for Singapore?The Trans-Pacific Partnership trade deal opens markets to Singapore firms and cements the Republic's position as a small but influential trading nation.
By Chia Yan Min, Economics Correspondent, The Straits Times, 14 Oct 2015Negotiations on the largest regional trade accord in history concluded last week. Pundits have since weighed in on which groups of nations stand to gain or lose from the Trans-Pacific Partnership (TPP), as the agreement is called.For instance, Vietnam - whose low-wage economy relies on exports - is estimated to be the biggest winner of the deal that slashes an estimated 18,000 tariffs among the dozen participating countries.At the same time, countries that signed on to the deal have also had to work doubly hard to convince domestic constituents of its benefits, in a reminder of how tough it can be to champion free trade.

The Canadian government has approved a plan to spend a hefty C$4.3 billion (S$4.6 billion) in compensation to soothe the vocal dairy industry, as the TPP opens up 3.25 per cent of the country's dairy market to foreign products.

But in Singapore - also one of the countries involved in the deal - the response has been relatively muted. This is despite the fact that the TPP is a big deal, in all senses of the word.

It is a far-reaching agreement involving 12 countries which make up 40 per cent of the world economy, and it is viewed as the most important trade deal negotiated in more than 20 years.

The deal was finally struck in Atlanta, United States, after five years of intense negotiations and must now be signed formally by the leaders of the 12 nations - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam - and ratified by their Parliaments.The economic benefits of the TPP are hard to quantify, especially as the fine print of the deal has not yet been released.Singapore is also a very open economy and has free trade agreements with all of the TPP countries except Canada and Mexico.OPENING UP MARKETSThe trade deal holds special symbolism for Singapore, which was among the first to broach it.

It has its roots in the Trans-Pacific Strategic Economic Partnership, which came into effect in May 2006 between Singapore, Brunei, Chile and New Zealand.

Two years later, the US, Australia and Peru formally indicated their interest in negotiating a free-trade agreement with these four nations. This agreement became known as the TPP. Malaysia and Vietnam formally joined the talks in 2010, followed by Mexico and Canada in 2012, and Japan in 2013.

Others are now lined up to potentially accede to the deal, including Asian economies such as South Korea and the Philippines, and Latin American ones like Colombia.

The TPP countries represent a large market for Singapore, accounting for 30 per cent of its total trade in goods in 2013 and 30 per cent of foreign direct investment here.

Although Singapore is already an open economy, the trade pact is still expected to boost trade and investment links between Singapore and key markets in the region and elsewhere in the world, including in fast-growing Latin America.

For instance, Singapore firms in certain sectors will be able to bid for government contracts in other TPP countries, and take larger stakes in foreign firms operating in key sectors abroad.

Business associations have also lauded special provisions in the TPP that aim to help small and medium-sized enterprises integrate into the global supply chain and expand overseas.

Local firms are already eyeing a bigger slice of the pie with lower trade barriers.

Food and beverage group Tee Yih Jia hopes to ramp up exports to South American markets such as Chile and Peru, which are part of the TPP, said Mr Gary Lee, its deputy general manager for export sales and marketing.

Regulators in these markets often impose non-tariff barriers on foreign food products - for instance, mandating the use of enriched flour instead of regular flour, Mr Lee noted.

This drives up manufacturing costs and also the price of the product in those markets.

"Enriched flour is more expensive and we have to specially tailor products for those markets. It's not a level playing field. The TPP should help with lowering barriers," he said.ADDITIONAL BENEFITS MINIMAL?Still, the additional benefits to Singapore, which already has 21 free trade agreements and economic partnership agreements in force, may be incremental.

For instance, while the TPP will lift curbs on foreign ownership of companies in sectors such as private healthcare, energy and telecommunications in Brunei, Malaysia and Vietnam, these industries tend to be dominated by domestic incumbents, with a first-mover advantage. Singapore and other foreign firms could find it tough to make real headway.

Second, Singapore will be a relatively small beneficiary of the TPP compared to regional neighbours Vietnam and Malaysia, partly because of its existing free trade agreements with major economies like the US, said Credit Suisse economist Michael Wan.

Vietnam could see a 10 per cent boost to its economy by 2025, while Malaysia could experience a 5.5 per cent expansion in the same period, based on a Peterson Institute for International Economics study.

In comparison, Singapore will get an expected boost of 1.4 per cent.

The third issue is that signing the deal is really the easier step of a longer process to get the deal going.

For this to occur, at least six original signatories, accounting for at least 85 per cent of economic activity across the TPP countries, have to ratify the agreement.

This will be a straightforward process in Singapore, but in Canada and the US where elections are looming, the TPP has been a hot-button issue.

This means that Singapore is still years away from reaping any of the trade pact's potential benefits.SINGAPORE AS A GLOBAL PLAYERBut beyond lowering trade and investment barriers, the pact also represents a new effort to agree on a range of "behind the border" non-tariff issues not previously tackled in previous trade agreements.

Tariff reductions form only a small part of its measures.

Other measures range from moves to develop the digital economy to efforts to protect intellectual property. Also included are controversial measures like a mechanism that will allow foreign investors to bring TPP governments to arbitration, which can undermine the ability of governments to regulate multinational firms.

Until more details are released, it would be fair to say that for Singapore, the real meat and potatoes of the TPP lie in its strategic dimension.

The TPP is said to represent the US' strategic "pivot" to Asia, and a response to the rise of chief rival China's growing regional and global influence. The Chinese government views the TPP as a US-led arrangement to exclude the mainland. China, the world's No.2 economy and Singapore's largest trading partner, has forged ahead with its One Belt, One Road initiative, to rebuild Silk Road trade infrastructure with Asia and Europe.

Singapore leaders have repeatedly spoken up for the TPP, even as they were also among the first to sign on to the China-promoted Asian Infrastructure Investment Bank.

"We're too small so we have to play with everybody, and this helps us punch above our weight," said Professor Annie Koh, professor of finance at the Singapore Management University's Lee Kong Chian School of Business and an academic director at the International Trading Institute.

She added: "Our involvement in the TPP signals that we're part of the decision-making community, so we're not a follower. The goal should be to set future trade agreements to these higher standards, and to include more countries in this high-standard agreement."

Mr Andrew Colquhoun, the head of Asia-Pacific sovereigns at rating agency Fitch Ratings, noted that Singapore "could hardly afford to stay outside the pact", as an open trade system is vital for Singapore's prosperity.

"From a Singaporean perspective, TPP membership gives it an edge over Hong Kong that could partly offset the benefits Hong Kong derives from its close links with China," he said.

Economists say that deals like the TPP might be just what the world needs to revive flagging trade. The slowing of the Chinese economy and a tepid global recovery from the financial crisis have contributed to this long-term slowdown.

In the long run, the TPP's global impact depends on whether it expands to include more countries. But even if the eventual economic impact is small, it is vital that Singapore holds on to its seat at the negotiating table.

Free trade remains crucial to Singapore, a small trading nation, and the TPP represents one way to ensure that trade continues to thrive, regardless of who is pushing for it.